Chapter 19 Test Bank

ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS GOVERNMENTAL FUNDS

Multiple Choice Questions
LO1
1.

When a capital lease is used to acquire general fixed assets,

the governmental fund acquiring the fixed assets records a(n)
__________________at the _____________________.
a.
b.
c.
d.

LO1
2.

lease payment
lease payment
present value
present value

cost.
cost.
of the minimum lease payments.
of the minimum lease payments.

The estimated revenues control account of Star City general

fund is eliminated when
a.
b.
c.
d.

LO1
3.

expenditure,
fixed asset,
expenditure,
fixed asset,

the citys tax receipts are measurable and available.

the budget is recorded.
appropriations are made.
budgetary accounts are closed.

When recording an approved budget into the general fund, which

of the following accounts would be credited?
a.
b.
c.
d.

Appropriations.
Transfers in.
Estimated revenues.
Deferred revenues.

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LO1
4.

A fund balance increase resulting from an operating transfer to

a governmental fund would have a
a.
b.
c.
d.

LO2
5.

The proceeds from a bond issuance for the building of a new

public school should be recorded in the ______________ fund at
the time the bonds are sold. The fund balance increase is
classified as ______________.
a.
b.
c.
d.

LO2
6.

credit to other financing sources.

debit to other financing sources.
credit to revenues.
debit to revenues.

capital projects, revenues

general, revenues
general, other financing sources
capital projects, other financing sources

A fire station that the city of Plenty constructed many years

ago is sold and is accounted for as an other financing source.
Where should entries be made?
a. In the general fund only.
b. In the general fund and capital projects fund.
c. In the general fund, capital projects fund and general
fixed asset group.
d. In the special revenue fund.

LO2
7.

Capital improvement costs incurred for general government

special assessments projects require recognition in the
a.
b.
c.
d.

LO3
8.

general fund.
capital projects fund.
trust fund.
special revenue fund.

The purpose of encumbrance accounting is to prevent

a.
b.
c.
d.

spending more than an appropriation.

making unreasonable appropriations.
spending more than deferred revenue.
wasteful spending.

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LO3
9.

The proper sequence of events is

a.
b.
c.
d.

LO3
10.

According to the GASB Codification, the "collected soon enough

after year-end to pay liabilities for current expenditures"
criterion for revenue recognition means collected within a
period not exceeding
a.
b.
c.
d.

LO3
11.

The
The
The
The

gross amounts earned approach.

gross amounts levied approach.
net of estimated uncollectible accounts approach.
net of related expenditures approach.

At any point in time, a government will be able to spend an

amount equal to
a.
b.
c.
d.

LO4
13.

30 days after the fiscal year end.

60 days after the fiscal year end.
90 days after the fiscal year end.
120 days after the fiscal year end.

Which of the following approaches is used to recognize

governmental fund revenues?
a.
b.
c.
d.

LO3
12.

order, appropriation, encumbrance, expenditure.

order, encumbrance, expenditure, appropriation.
appropriation, encumbrance, order, expenditure.
appropriation, order, encumbrance, expenditure.

appropriations minus expenditures.

appropriations minus expenditures minus encumbrances.
appropriations minus encumbrances.
expenditures minus encumbrances.

Which of the following items would be presented in a Statement

of Revenues, Expenditures, and Changes in Fund Balance?
a.
b.
c.
d.

Appropriations.
Encumbrances.
Other financing sources.
Unreserved fund balance.

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LO4
14.

Which of the following funds has similar accounting and

reporting to the special revenue fund?
a.
b.
c.
d.

LO4
15.

The
The
The
The

proprietary fund.
trust fund.
general fund.
agency fund.

Which financial statement(s) is (are) required for governmental

funds with legally adopted annual budgets?
I. The statement of cash flows
II. The statement of revenues, expenditures and changes in fund
balance-budget and actual
a.
b.
c.
d.

LO4
16.

Which statement below is correct with respect to the general

fund financial statements?
a.
b.
c.
d.

LO4
17.

A budgetary comparison must be presented.

Encumbrances must be included on the statements.
Capital leases must be included on the statements.
All governmental fixed assets and long-term debt must be
included on the statements.

General fund operating lease payments are typically reported as

a.
b.
c.
d.

LO5
18.

I only.
II only.
I and II.
Neither I nor II.

overhead expenditures.
rental expenditures.
general government expenses.
capital outlay expenditures.

Infrastructure costs in government-wide financial statements

a. must be recorded and depreciated by government.
b. may be recorded and depreciated at the option of government
as long as footnote disclosures are made.
c. must be recorded and depreciated by a government unless a
modified approach is used, in which case, depreciation is
optional.
d. must be expended in the year that they are incurred.

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LO5
19.

All of the following government fund items must be reconciled

in government-wide financial statements except
a.
b.
c.
d.

LO5
20.

deferred revenue.
long-term liabilities.
construction expenditures.
encumbrances.

Which statement below is incorrect with respect to the

government wide financial statements?
a. All fund categories must convert to the modified accrual
basis of accounting.
b. Internal service fund transactions with other governmental
funds must be excluded from the statements.
c. Capital leases must be included on the statements.
d. All governmental fixed assets and long-term debt must be
included on the statements.

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LO1
Exercise 1
The City of Sharpesburg entered the following transactions during
2006:
1. The city authorized a bond issue of $2,500,000 par to finance
construction of a fountain in the city square. The bonds were
issued for $2,560,000. The premium was transferred to the fund
for which the debt will be serviced.
2. The city entered into a contract for construction of the fountain
at an estimated cost of $2,425,000.
3. The city received and paid a bill for $2,445,000 from the
contractor upon completion of and approval of the fountain.
4. The unused bond proceeds were set aside for debt service on the
bonds. Accordingly, those resources were paid to the appropriate
fund.
Required:
Prepare journal entries for each of the above transactions. Identify
the appropriate fund or funds used by Sharpesburg.

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LO1
Exercise 2
1. The city issued $6 million of refunding bonds at par.
2. The city transferred $3,700,000 from its General Fund to its Debt
Service Fund to provide the additional resources needed to defease
the bonds in substance.
3. The city paid $9,700,000 into an irrevocable trust established at
the First Seaside Bank to defease the bonds in substance.
Required:
Prepare journal entries for each of the above transactions. Identify
the appropriate fund or funds used by the city of Plaza Royal.

LO1
Exercise 3
Prepare journal entries to record the following grant-related
transactions for a municipality special revenue fund.
1.
2.
3.
4.

Awarded an operating grant from the state, $2,500,000 (cash will

be received after qualified expenditures are made).
Incurred and paid qualifying expenditures on the grant program,
$1,600,000.
Received a federal grant to finance construction of a new school,
$4,500,000 (cash received in advance).
Incurred and paid construction cost on the school building,
$3,000,000.

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LO1
Exercise 4
The general fund trial balance for Overland City held the following
balances at September 30, 2006, just before closing entries were
made:
Due from other funds
Unreserved fund balance
Estimated revenues
Revenues
Appropriations
Expenditures - current year
Expenditures - prior year
Encumbrances
Operating transfers in
Reserve for encumbrances
Reserve for encumbrances - prior year

750
5,000
20,000
18,950
19,000
16,800
2,500
1,200
4,000
1,200
2,500

Required
Prepare the necessary closing entries.
LO1
Exercise 5
The general fund trial balance for Owens Creek City held the
following balances at June 30, 2006, just before closing entries were
made:
Due from other funds
Unreserved fund balance
Estimated revenues
Revenues
Appropriations
Expenditures - current year
Expenditures - prior year
Encumbrances
Operating transfers in
Reserve for encumbrances
Reserve for encumbrances - prior year

Required
Prepare the necessary closing entries.

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2,700
51,000
208,000
198,900
196,500
193,800
4,500
3,200
6,000
3,200
4,500

LO1&2
Exercise 6
El Dorado County incurred the following transactions during 2006:
1. Marketable securities were donated to support the county's bike
and nature trails. The donor acquired the securities for $35,000
ten years earlier; however, their current market value was
$200,000. The donor specified that all income from the
securities be used for the trails. The principal is to be held
intact for an indefinite period of time.
2. Computer equipment was ordered for general fund departments.
estimated cost was $48,000.

The

3. The county received the computer equipment. The actual cost was
$47,750, of which $42,000 was paid to the vendor before yearend.
4. The county sold a (general government) dump truck that originally
cost $55,000. The county sold the truck at auction for $3,300.
5. The government leased equipment under a capital lease agreement.
The capitalized cost was $120,000. The county made an initial
down payment of $10,000.
Required:
Prepare journal entries for each of the above transactions. Identify
the appropriate fund or funds used by El Dorado County.

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LO1&2
Exercise 7
Johnson County incurred the following transactions during 2006:
1. The county authorized a new general obligation bond issue of $5
million par to purchase an office building with a contract price of
$4,975,000. The bonds were issued for $4,960,000.
2. The county levied real property taxes of $10,000,000. Sixty per
cent of the taxes levied were for local municipal governments. By
fiscal year-end, 85% of the taxes were collected and remitted to
the municipalities. Two per cent of the total levy was estimated to
be uncollectible.
3. The escrow for the office building closed and the county paid the
contract price.
4. The county paid $200,000 for interest on the bonds.
Required:
Prepare journal entries for each of the above transactions. Identify
the appropriate fund or funds used by Johnson County.

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LO3
Exercise 8
Address the following situations separately.
1.For the budgetary year beginning July 1, 2006, Center Township
expected the following cash flow resources:
Property taxes, licenses, and fees..........$3,000,000
Proceeds of debt issue.......................1,000,000
Interfund transfers from debt service..........750,000
In the budgetary entry, what amount did Center Township record for
estimated revenues?
2. During the fiscal year ended June 30, 2006, Pacific City issued
purchase orders totaling $7,000,000. Pacific City received
$6,500,000 of invoiced goods at the encumbered amounts and paid
$6,100,000 toward them before year-end.
How much were Pacific City's encumbrances on July 1, 2006?
3.The following information pertains to property taxes levied
($1,035,000 total) by Palm Lake City for the calendar year 2006:
Expected collections during 2006
$750,000
Expected collections in first 60 days of 2007
200,000
Expected collections during the remainder of 2007
50,000
Expected collections during January 2008
30,000
Estimated to be uncollectible
5,000
What amount did Palm Lake City report for property tax revenues in
2006?
4.The following information pertains to Dodge City's general fund for
2006:
Appropriations..............................$7,000,000
Expenditures.................................5,500,000
Other financing sources......................1,000,000
Other financing uses.........................3,000,000
Revenues
................................ 9,000,000
At what amount will Dodge City's total fund balance increase
(decrease) in 2006?

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LO4
Exercise 9
The following information regarding the fiscal year ended September
30, 2006, was drawn from the accounts and records of the Jasper
County general fund:
Revenues and other asset inflows:
Taxes
Licenses and permits
Intergovernmental grants
Proceeds of short-term note issuances
Collection of interfund advance to other fund
Receipt of net assets of terminated fund
Expenditures and other asset outflows:
General government expenditures
Public safety expenditures
Judicial system expenditures
Health and welfare expenditures
Equipment purchases
Payment to debt service fund to cover future debt
service on general government bonds
Total fund balance, October 1, 2005

12,000,000
2,500,000
1,000,000
1,200,000
800,000
1,800,000
7,500,000
2,000,000
1,200,000
1,750,000
750,000

500,000
3,000,000

Required
Prepare a statement of revenues, expenditures, and
changes in fund balance for the Jaspar County general
fund for the year ended September 30, 2006.

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LO4
Exercise 10
The unadjusted trial balance for the general fund of the City of
Pegasus at June 30, 2006 is as follows:
Debits
Accounts receivable
Cash
Due from agency fund
Encumbrances
Estimated revenues
Expenditures
Taxes receivable

Credits
Allowance for doubtful accounts
Allowance for uncollectible taxes
Appropriations
Due to utility fund
Unreserved fund balance
Reserve for encumbrances
Revenues
Taxes received in advance
Vouchers payable
Supplies on hand at June 30, 2006 totaled $8,000. The
$60,000 encumbrance relates to equipment ordered but
not received by fiscal year-end.
Required
Prepare a balance sheet for the general fund of the
City of Pegasus at June 30, 2006.

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40,000
75,000
25,000
60,000
975,000
750,000
250,000
5,000
50,000
785,000
40,000
30,000
60,000
990,000
15,000
200,000

Multiple Choice Questions

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

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Exercise 1
1.
CPF
Cash.......................................
Other financing sources-bond proceeds. . .
Other financing uses-operating
transfers out........................
Cash....................................
DSF
Cash.......................................
Other financing sources-operating
transfers in ........................
2.
CPF
Encumbrances...............................
Reserve for encumbrances................
3.
CPF
Reserve for encumbrances...................
Encumbrances............................
Expenditures-capital outlay................
Cash....................................
4.
CPF
Residual equity transfers out..............
Cash....................................
DSF
Cash.......................................
Residual equity transfers in............

2,560,000

60,000

2,560,000

60,000

60,000
60,000

2,425,000

2,425,000

2,425,000
2,425,000
2,445,000

2,445,000

55,000
55,000
55,000

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55,000

Exercise 2
1.
DSF
Cash.......................................
Other financing sources-refunding
bond proceeds...........................
2.
GF
Other financing uses-operating
transfers out...........................
Cash....................................
DSF
Cash.......................................
Other financing sources-operating
transfers in............................
3.
DSF
Expenditures-payment to refunded bond
escrow agent............................
Other financing uses-payment to
refunded bond escrow agent..............
Cash....................................

6,000,000
6,000,000

3,700,000

3,700,000

3,700,000
3,700,000

3,700,000
6,000,000
9,700,000

Exercise 3
1.

No entry

2.

Expenditures.........................
Cash.............................

1,600,000

Cash.................................
Other financing sourcesreciprocal transfer from GF. . . . .

1,600,000

Accounts receivable-grant...........
Grant revenue....................

1,600,000

3.

Cash.................................
Deferred grant revenue...........

4,500,000

4.

Expenditures.........................
Cash.............................

3,000,000

Deferred grant revenue...............

Grant revenue

3,000,000

1,600,000

1,600,000
1,600,000
4,500,000
3,000,000
3,000,000

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Exercise 4
Appropriations.............................
Unreserved fund balance....................
Estimated revenues......................

19,000
1,000

Revenues...................................
Operating transfers in.....................
Expenditures............................
Encumbrances............................
Unreserved fund balance.................

18,950
4,000

Reserve for encumbrances-prior year........

Expenditures-prior year.................

2,500

20,000

16,800
1,200
4,950
2,500

Exercise 5
Appropriations.............................
Unreserved fund balance....................
Estimated revenues......................

196,500
11,500

Revenues...................................
Operating transfers in.....................
Expenditures............................
Encumbrances............................
Unreserved fund balance.................

198,900
6,000

Reserve for encumbrances-prior year........

Expenditures-prior year.................

4,500

208,000

193,800
3,200
7,900
4,500

Exercise 6
1.
PF
Investments-marketable securities..........
Revenues-additions to permanent endowments
2.
GF
Encumbrances...............................
Reserve for encumbrances................
3.
GF
Reserve for encumbrances...................
Encumbrances............................
Expenditures-capital outlay................
Cash....................................

200,000
200,000

48,000

48,000

48,000
48,000
47,750

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42,000

Vouchers payable........................
4.
GF
Cash.......................................
Other financing sources-proceeds from
sale of general fixed assets.........
5.
GF
Expenditures-capital outlay................
Cash....................................
Other financing sources-increase in
capital lease liabilities............

5,750

3,300
3,300

120,000

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10,000
110,000

Exercise 7
1.
GF
Cash.......................................
Other financing sources-bond proceeds. . .
Encumbrances...............................
Reserve for encumbrances................
2.
AF
Taxes receivable...........................
Liability to municipalities.............
Liability to county.....................

4,960,000
4,975,000

4,975,000

10,000,000

Cash.......................................
Taxes receivable........................

8,500,000

Liability to county........................
Liability to municipalities................
Cash....................................

3,400,000
5,100,000

GF
Taxes receivable...........................
Allowance for uncollectible taxes.......
Property tax revenue....................
Cash.......................................
Taxes receivable........................
3.
GF
Reserve for encumbrances...................
Encumbrances............................
Expenditures-capital outlay................
Cash....................................
4.
DSF
Expenditures...............................
Cash....................................

4,960,000

4,000,000

3,400,000

6,000,000
4,000,000
8,500,000

8,500,000

80,000
3,920,000
3,400,000

4,975,000
4,975,000
4,975,000

4,975,000

200,000

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200,000

Exercise 8

1.Center Township

3,000,000

2.Pacific City

500,000

750,000
200,000
950,000

3.Palm Lake City

Collections during 2006
Expected collections in first 60 days of 2007
2006 property tax revenue
4.Dodge City
Revenues
Long-term debt proceeds
Expenditures
Operating transfer out
Fund balance increase

$
$

9,000,000
1,000,000
(5,500,000)
(3,000,000)
1,500,000

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Exercise 9
Jasper County
General Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended September 30, 2006
Revenues:
Taxes......................................
Licenses and permits.......................
Intergovernmental grants...................
Total revenues..........................

$12,000,000
2,500,000
1,000,000
15,500,000

Expenditures:
Current operating expenditures:
General government.........................
Public safety..............................
Judicial...................................
Health and welfare.........................
Total current operating.................
Capital Outlay.............................
Total expenditures......................

7,500,000
2,000,000
1,200,000
1,750,000
12,450,000
750,000
13,200,000

Excess of revenues over expenditures.......

2,300,000

Other financing sources (uses):

Operating transfer to debt service fund. . . .

(500,000)

Excess of revenues and other financing sources

over (under) expenditures and other
financing uses.............................

1,800,000

Fund Balance, October 1, 2005..............

3,000,000

Residual equity transfer in................

1,800,000

Fund Balance, September 30, 2006...........

$6,600,000

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Exercise 10
City of Pegasus
General Fund
Balance Sheet
June 30, 2006
Assets:
Cash.......................................
Taxes receivable (net of estimated
uncollectible of $50,000).................
Accounts receivable (net of estimated
uncollectible of $5,000)..................
Due from other funds.......................
Supplies...................................
Total assets............................

$75,000
200,000
35,000
25,000
8,000
$343,000

Liabilities and Fund Balance:

Liabilities:
Vouchers payable...........................
Due to enterprise fund.....................
Taxes received in advance..................
Total liabilities.......................

200,000
40,000
15,000
255,000

Fund Balance:
Reserved for encumbrances..................
Reserved for inventory.....................
Unreserved.................................
Total fund balance......................
Total liabilities and fund balance......

60,000
8,000
20,000
88,000
$343,000

Computation of Unreserved Fund Balance:

Pre-closing balance.....................
Add:
Revenues.........................
Appropriations...................
Deduct:
Expenditures.....................
Encumbrances.....................
Estimated revenues...............
Post-closing balance....................

$ 30,000
$990,000
785,000
$750,000
60,000
975,000

1,775,000

1,785,000
$
20,000

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